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Tiny hospitals an overlooked niche?

July 24, 2017

The field of alternative healthcare facilities has grown crowded in recent years. It can now add a new offering to the mix: microhospitals.

Taking a cue from the retail-like offerings of emergency and urgent care facilities but including care options associated with a full-service hospital, the healthcare newcomer is gaining traction in communities that have found their choices lacking, like rural areas and remote communities. It’s a recipe that produces a lot of benefit, says Robert Garcia, VP of the healthcare advisory team at Transwestern.

The veteran of several successful microhospital discusses the merits of such facilities in this exclusive commentary for GlobeSt.com. The views expressed here are Garcia’s own.

Microhospitals, the latest incarnation of scaled-down healthcare facilities, are bringing acute care into underserved neighborhoods, remote communities and other locations that combine retail-like access with services traditionally confined to major hospitals.

An expansion on the freestanding emergency department concept that already operates in shopping centers and on high-traffic corridors around the country, the microhospital offers patients the same 24-hour access to care with little-to-no wait for emergency services. In addition, it provides elective surgeries at a more convenient location and the ability to recover closer to home. The trend represents more than $1 billion in current investment in 15 states, answering demand from a demographic group that is less dependent on government payor sources and therefore less likely to be affected by federal healthcare policy.

Why micro? Because small size allows tailored services that better-serve local demand. Investors can identify development sites using the same kind of hot-spot data mapping and traffic pattern analysis that identifies the best locations for retail projects, highlighting areas with the right demographic mix that have been underserved by existing or remote healthcare options.

It’s no accident that many microhospitals are in rural communities, extending the reach of existing healthcare systems into remote population centers. And as urbanization brings more residents to densely populated cities, hospital systems are redeveloping secondary sites into easily accessible microhospitals that supplement their flagship campuses, expanding their outreach in a cost-effective, hub-and-spoke manner.

For care providers and investors alike, this hospital/retail hybrid offers tantalizing profit potential: For one, the cost to construct a 30,000- to 40,000-square-foot, freestanding microhospital with 10 to 20 beds is often lower than expanding or converting an existing structure by a similar number of beds and associated services. Operating costs are typically lower than traditional hospital space, too, thanks to efficiencies of a properly sized emergency department, imaging, pharmacy, lab and patient bed count, balanced with surgical and clinical space in a small footprint tailored to the market.

And due to the smaller size of a microhospital, the required design and construction window averages only 18 to 20 months, much faster than conventional hospitals.

The healthcare system may choose to limit a microhospital to a specialization such as spinal surgery or cardiac care, for example, offering procedures that may generate a healthy revenue stream while providing more of a concierge’s experience. In tandem with a full-sized hospital, a revenue-leading microhospital may help to offset the costlier operations and greater proportion of indigent care delivered on the main campus.

Indeed, most microhospitals offer a limited scope of care. They are typically low-trauma facilities (level 4 or 5) with advanced surgical capabilities and a high nurse-to-patient ratio. Dealing with specialized service lines and few severe trauma cases generally enables these small hospitals to out-perform their full-sized counterparts in outcome statistics, with infection and mortality rates far below national averages.

Robert Garcia, vice president of the healthcare advisory team at Transwestern, has successfully built several microhospitals.

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